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Fed: banks ease up on credit limits

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Credit card issuers have become like bartenders at a wedding, dispensing credit more liberally to invited guests, but not throwing the doors open to just anyone, said a Fed report issued Monday.

Banks reported a considerable easing of credit limits for new and existing card customers in the second quarter of 2013, although they continued to keep a tight grip on issuing new cards, according to the Federal Reserve's quarterly survey of senior loan officers.

Nearly 20 percent of banks said they "eased somewhat" their credit limits for new or existing credit card accounts, while only 2 percent said they "tightened somewhat." Most banks -- about three-quarters of them -- said credit limits were "basically unchanged." 

Raising credit limits

"One way to expand (lending) is to expand credit to the customers you already know -- the risk of doing so is less than other things you could do," said James Chessen, chief economist with the American Bankers Association.

The willingness to expand credit limits might be a precursor to more lenience in granting credit cards, as the economy improves and lending in general gets less risky, he said.

The Fed surveyed 73 domestic banks in July about their lending standards and demand for loans during the previous three months. The quarterly senior loan officer survey has tracked a glacial loosening of standards for credit card borrowers since the big chill following the financial crisis in 2008.

In July, banks indicated that they remain mostly wary about issuing new cards, the survey found, continuing the very gradual warming. Only 5.5 percent said they "eased somewhat" standards for approving new card applications, while 1.8 "tightened somewhat." Nearly 93 percent said they "remained basically unchanged."

Banks were a little more generous when it came to interest rates. About 4 percent said they "eased somewhat" their interest rates in relation to their cost of funds, and 2 percent claimed they "eased considerably."

Banks reported being mostly unchanged about the minimum required credit score or the percent of balance required to be repaid monthly.

Demand for plastic is also mixed, the quarterly survey found. Although 16 percent of bankers said card demand that they see from customers was "moderately stronger," another 8 percent characterized demand as "moderately weaker."

Credit reports add revealing details

The banks' stern stance toward card lending contrasts with other forms of consumer credit. For auto loans, 15.6 percent said their credit standards "eased somewhat," extending a string of quarters that saw the bar get lower for car loans.

While banks are getting more comfortable with some forms of consumer credit, "it's going to take some time to get there in the unsecured world," said Scott Hoyt, senior director of consumer analytics at Moody's Economy.com. Collateral makes underwriting auto loans less risky.

When will access to cards get easier?

"It's hard to say," said Hoyt. "Lenders are still trying to figure out what they can do under the new regulatory environment."  The Credit Card Act of 2009 and subsequent consumer financial regulation have heightened banks' uncertainty, putting a damper on their willingness to open new accounts, he said.

As for home loans, 10 percent of banks said that their credit standards for prime, home-purchase mortgages eased somewhat in the quarter, while 3 percent said they tightened. A quarter of banks said standards for subprime mortgages "tightened considerably," and the rest said standards were unchanged.

See related: Fed: Banks modestly lower barriers to credit cards

Published: August 5, 2013


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